November 03, 2006

More Stern criticism

The Business, in an entertaining piece (so good they pasted it twice) , dubs the Stern report "the ecology equivalent of a dodgy dossier".

Doubts have been hardened into certainties, contradictory facts downplayed or omitted. The result is a tax-raising manifesto which could see Great Britain – which generates just 2% of world carbon emissions – sleepwalk into a growth-destroying agenda which will hit the poorest hardest.

Does it make sense to spend money today to reap a hypothetical pay-off in the form of reduced losses from global warming in many decades time? The paper calls Stern's "artificially low discount rate" perhaps his most crucial questionable assumption.

A fundamental principle of economics is that a pound to be pocketed tomorrow is worth less than a pound in the pocket today (because the money could be put in the bank and hence its expenditure entails an opportunity cost); the real question that matters is by how much tomorrow’s pound should be discounted to reflect this time value of money.

Stern’s answer is not by much – which rigs the outcome in favour of massive spending today. In assessing the impact of very long-term phenomena such as climate-change, use of any reasonably high discount rate (say 5-6%) renders the present value of damage, which occurs in the very long-term, of relatively small importance now.

Stern suggests the developing world in 2100 will be richer than the USA is today. In that case Bangladesh in 2100 will be able to afford far more flood defences than The Netherlands can now.

And the report ignores beneficial effects of global warming. It argues that 35,000 died across the continent in the European heatwave of 2003 and warns that such events “will be commonplace by the middle of the next century”. But 25,700 died from the cold last winter in Britain alone.

The paper reminds us that China is opening a coal power plant every five days (a pace it will keep until 2012). "But if Stern has his way, regressive indirect taxes will soar, hitting the poor hardest for no discernible benefit" - except Gordon Brown's.

The Business concludes by warning us, "The certainty which the political and media elite crave simply does not exist; Stern has not provided it with this report and they delude themselves if they think it has".

Not that dodgy numbers will stop trendy fiddlers like Miliband, or regulation junkies like the EU. Stand by for Green Gordon seizing the excuse to impose extra taxes in the UK, ostensibly to provide a moral lead to the world which no one else will, or indeed should, follow. And the Tories and the Lib Dems will fawn and connive.